It's a Deal on Tax Reform

For the first time in 40 years, Pennsylvania lawmakers have passed a property tax reform plan guaranteed to take effect.

It took decades of hemming and hawing, years of political infighting and months of a stalemate between the House and Senate. It took name-calling, finger-pointing and an overhaul of the Legislature by voters.

But amid cheers of relief and grumbles of disappointment Wednesday night, House lawmakers approved the same Senate-passed bill they snubbed just one month ago, promising to use revenues from casino taxes to cut property taxes beginning in 2009. Then they spurned a proposal to raise the sales tax to further reduce property taxes.

"We have repaired our compact with the citizens and delivered on our promise to use gaming money to cut their property taxes," Gov. Ed Rendell said in a written statement.

Under the plan, which Rendell said he will sign into law, $689 million will be available for property tax relief, assuming gambling tax revenues reach $1 billion, as Rendell predicts.

The exact amount of a homeowner's tax reduction will vary by school district, using a formula set by the state.

In the Lehigh Valley, property tax cuts will vary widely. According to House Republicans, if $689 million is distributed for tax relief, Allentown property owners will get a $499 tax break, Easton area homeowners will see a $278 tax cut and Salisbury Township homeowners will receive a $127 reduction.

Low-income seniors earning less than $35,000 will receive even larger tax breaks because $200 million of slots tax revenues will go toward expanding the state's property tax and rent rebate program. That will give seniors over age 65 and widows and widowers over 50 rebates of up to $650.

Additionally, the bill will require school districts to hold referendums if they want to raise property taxes -- with some exceptions -- above the rate of inflation. It will also allow voters to raise their income taxes to further cut property taxes beginning in 2008.

"This is clearly a start," said Rep. Jennifer Mann, D-Lehigh, who supported the bill.

But while some lawmakers described the vote as a victory for homeowners, others complained the tax reductions are too small, and worse, could be offset by increases in income taxes and in some cases, even property taxes.

The bill will give homeowners a smaller tax break -- in some cases more than $100 less -- than they would have received under Act 72, the state's 2004 property tax plan. That plan failed after four-fifths of Pennsylvania's 501 school districts refused to participate, largely because they didn't want restrictions on their taxing authority.

Additionally, House Bill 39 will give school districts more reasons to raise taxes without giving voters a say than they had under Act 72. It will expand a school district's ability to raise taxes for costs related to special education, teacher pensions and construction -- three of the largest expenses districts face and some of the most common reasons for tax increases.

Because the bill allows voters to raise income taxes to further reduce property taxes, "For many people it will actually mean they're paying more in taxes, not less in taxes," predicted Rep. Mike Turzai, R-Allegheny.

In two separate votes following hours of debate, some House lawmakers tried to provide homeowners with bigger tax breaks by raising the sales tax from 6 percent to 6.5 or 7 percent. Both bills failed.

Unlike House Bill 39, which went straight to the governor's desk because it was previously passed by the Senate, a bill increasing the sales tax would still have to be passed by the Senate. That seemed unlikely because Senate leaders have repeatedly said they would not support a sales tax hike.

For that reason, some lawmakers described the sales tax debate as an exercise in futility. "Even if this passes, it is dead on arrival [in the Senate]. D-E-A-D," said Rep. Will Gabig, R-Carlisle.

That may have been part of the reason the sales tax bills failed, Mann said. Many lawmakers supported the theory but were unwilling to go on record in favor of a tax increase knowing that the bill would ultimately fail in the Senate.

Senate leaders were happy with the House vote. "This plan is essentially what the Senate passed and we're glad the House has now taken action on it," said Erik Arneson, spokesman for Senate Majority Leader David Brightbill, R-Lebanon.